Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013. / This thesis aims to investigate the influence of earnings news on stock liquidity and the relationship between information asymmetry cost component and Post Earnings Announcement Drift in different equity markets. The scope of this research includes 426 firms from three countries in capital trading, the United States of America, South Africa and France. The first part of empirical work, shows that price reaction and liquidity effect are profound during short term event window length and reduce over time when the news ceases, The second part, a multivariate regression analysis which uses Generalised Method of Movement to capture both the problems of a likely presence of endogeneity between the explanatory variables and cross-stock heterogeneity, shows that the impact of earnings announcement on stock liquidity can split in two directions. The immediate effect is the shock after the news, causing stock liquidity to decrease immediately by lifting the illiquidity function upward. After the event, from the new increased position of illiquidity function, stock liquidity improves over time due to the trading volume increases and shifts the slope of illiquidity function downward. The overall effects at a point of time will be the total impact of the two side effects. And as shown in the results, the overall impact on the US and SA markets are that stock liquidity decreases while that of Euronext Paris, the stock liquidity increases. There are two types of Accounting law systems of which the common law system is used in the US and SA equity markets and the code law system used in France, the difference between the two law systems is that the information asymmetry component dominates the bid-ask spread in common law countries as in the US and SA markets while the cost of trading dominates the bid-ask spreads in code law countries such as France equity market. Finally, it is shown that there are several determinants of the PEAD, of which stock liquidity is one. Earnings news changes the stock liquidity, and therefore stock liquidity plays a role in the market response. When earnings news is released, it initially creates a gap between the informed traders and the uninformed traders, increasing the bid ask spread. Over time, this information gap decreases, however in the meantime more information on the market increases trading volume and reduces trading cost, leading to another part of the bid ask spread decreasing or stock liquidity improving. After decomposing bid ask spread into information asymmetry cost and cost of trading components, the final part of empirical
iv
analysis shows that information asymmetry cost component provides a partial explanation for PEAD in the Johannesburg stock exchange and Euronext Paris.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/13076 |
| Date | 27 August 2013 |
| Creators | Oyebanji, Busayo Funke |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | application/pdf |
Page generated in 0.0029 seconds